Can an RNOR Really Claim Foreign Tax Credit?

Picture this: you've just moved back to India after years in the US. You're still filing your US tax returns, paying tax there on your American income and now you're wondering, “Since I'm paying tax in the US, can I at least get credit for it in India?”

It's a fair question. But here's the short answer upfront: No, an RNOR generally cannot claim foreign tax credit in India. Here's why, in two simple steps.

1. Tax Credit Only Exists When You're Taxed Twice — And for RNORs, You Usually Aren't

Foreign Tax Credit (FTC) is not a reward for paying tax abroad. It exists for one reason only: to stop the same income from being taxed twice, once in the country where you earned it, and again in the country where you live (your "residence" country).

Now here's the key fact about RNOR status: India only taxes an RNOR's foreign income if it comes from a business or profession controlled from India (what's technically called PGBP income — Profits and Gains from Business or Profession). Everything else you earn outside India simply isn't taxed by India at all.

So think about what this means: if India was never going to tax that US income in the first place, there's no double taxation happening. And if there's no double taxation, there's nothing for a tax credit to "fix." You can't get credit for paying tax twice on something you were only ever taxed on once.

2. Under the Tax Treaty, You May Not Even Count as an "Indian Resident" for This Purpose

Here's a twist most people miss. Most tax treaties, including the one between India and the US, have a rule that says: if your tax liability in a country is based only on income sourced from that country and nothing else therefore you don't count as a “resident” of that country under the treaty.

Apply this to an RNOR. Since India only taxes RNORs mostly on India-sourced income, an RNOR's tax liability in India is essentially source-based. This means that, strictly read, the treaty may not even treat the RNOR as a “resident of India” it may instead treat them as a resident of the other country .

Why does this matter? Because tax credit relief under the treaty is meant for residents of a country to get credit against their tax paid elsewhere. If an RNOR technically isn't a treaty-resident of India, the RNOR simply doesn't fit into the framework that grants this relief in India.

There is a Tribunal ruling that has allowed RNORs to claim tax credit — most notably the Delhi Tribunal's decision in Aditya Khanna v. ITO (International Taxation) [2019] 105 taxmann.com 323 (Delhi - Trib.) [17-05-2019], which held that RNORs are simply a sub-category of “residents” under Indian law and are therefore entitled to claim credit. But here's the catch: this ruling actually stopped to examine the treaty-residency question in depth. They looked at RNOR status only under Indian domestic law, and didn't dig into whether the person even qualifies as an “Indian resident” under the treaty's own definition. That's a real gap and this ruling shouldn't be treated as the final word on the subject.

3. The Bottom Line

Putting it all together, the conclusion is straightforward: an RNOR cannot claim foreign tax credit in India. Since India only taxes an RNOR on India-sourced income (with the narrow exception of PGBP income), there is no double taxation to begin with, and a tax credit only exists to relieve double taxation. Hnece, there's simply nothing to relieve here.

On top of that, because some of the treaties typically excludes source-based tax liability from counting as “residence,” an RNOR may not even qualify as an “Indian resident” for treaty purposes, which is the very status needed to claim this relief in India.

While the Tribunal ruling has allowed RNORs to claim credit, they never actually examined this residency question, leaving a real gap in that line of cases is that one that shouldn't be relied on as the final word. In short, the RNOR framework was designed to keep most foreign income out of India's tax net, and once that income is out of the net, there's no double taxation left for a credit to fix.